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Question:
a) Using illustrative and numerical examples, differentiate between arbitraging and speculation in the context of foreign exchange market.
b) One year borrowing and deposit interest rates are 12% and 10% respectively in the Republic of Tran and 10% and 8.89% respectively in the Kingdom of Sylvania. The spot exchange rate for the Tran dollars is $14 to the Sylvan Francs. The 12-month forward rate is $14.52. The economies are pegged together, and have been so for a number of years.
i) Suggest a way you may profit from the pricing inconsistency that is presented here, consider you have no initial investment funds.
ii) Will the situation persist forever? Describe your answer.
iii) What could be the spot rate which would bring a no-arbitrage situation?
What is the present value of the following payment stream, discounted at 7% annually: $1,200 at the end of year 1, $2,200 at the end of year 2, and $3,200 at the end of year 3?
The management of Nelson plc wish to estimate their firm’s equity beta. Nelson has had a stock market quotation for only two months and the financial management feels that it would
Morningside nursing Home, a not-for-profit corporation, is estimating its corporate cost of capital. Its tax-exempt debt currently requires an interest rate of 6.2 perce
In this paper, we propose new forecasting methods based on advance demand information, and perform a case study to compare them to existing ones based on advance demand information
Syfy is considering investing in a project with the following details. The initial cost of investing in equipment is estimated to be Rs1,200,000. However, the project is deemed to
An investor buys a French government, 10-year bond, paying annual coupon of 4.5%. Face value = 1000. The investor is unsure of his investment horizon and considers 5 horizons: 5, 6
Question: (a) The Mauritius Automated Clearing and Settlement System (MACSS) is the Mauritian Real-time Gross Settlement (RTGS) system. (i) Define the term gross settlement
Question 1: Compare and contrast the Capital Asset Pricing Model with that of the Arbitrage Pricing Theory. Question 2: (a) Explain the concept of stock market efficien
#17
differentiate between pricing and allocative efficincy
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